SA warned of tax knock, job losses on new smoking laws

Cape Town – South Africa’s plans to tighten the anti-smoking laws will ignite the illicit trade in cigarettes, thereby removing billions of rands of tax revenue and threatening jobs, British American Tobacco (BAT) warned on Wednesday.

This follows the pledge by Health Minister Aaron Motsoaledi on Tuesday to strengthen the Tobacco Products Control Act to fall in line with World Health Organisation (WHO) Framework Convention on Tobacco Control.

The biggest change would see plain packaging on cigarette products in an effort to drive down the incentive for people to smoke.

Motsoaledi told SABC News that all cigarettes must be in one brown package with graphics that show the damage they can cause. “No branding, no logos, no colours,” he said.

It will drive up illegal trade

However, the owners of Dunhill, Rothmans and Lucky Strike, BAT [JSE:BTI] said it is concerned the measures will simply drive up the illicit trade in tobacco.

JSE-listed BAT spokesperson Will Hill told Fin24 that a quarter of all cigarettes currently sold in South Africa are on the black market, meaning South Africa already misses out on tax revenue.

“A report conducted in Australia after it implemented these rules revealed a significant increase in the illegal trade of cigarettes,” Hill explained.

“South Africa already has a problem with this criminal activity and the plans to have plain packaging will only increase the criminal activity.”

BAT said research indicates that up to 600 billion cigarettes a year are illegal – smuggled, counterfeit or tax-evaded in other ways. That’s up to 12% of world consumption.

BAT, which employs 2 715 South Africans, has contributed significantly to the domestic economy. BAT South Africa’s tax contribution in 2013 was R13.52bn or 1.5% of the total revenue collected. Its supply chain output was R35.21bn, while it supported over 75 000 jobs in the country, generating R6.14bn in labour income during 2013. Its operations sustain capital stock of R20.66bn and purchased goods and services valued at R6.22bn.

BAT’s next generation offering

While it criticised South Africa’s plans, BAT said it wasn’t saying government should not tackle the health issues of smoking.

“BAT in 2016 is a different company to the one people perceive,” Hill said. “We know that the nature of our products means they need to be regulated. However, regulations should achieve the health objectives the government has set out without impeding on our legal rights.

“Plain packaging is unlawful and doesn’t achieve these objectives,” he said. “It will only boost the illicit trade.”

Hill said if the government fails to adequately engage with the industry over their issues before promulgating the new rules, it could seek legal action. “BAT will need to see the wording of the regulation,” Hill said.

“It’s not something we want to do or like doing but if we see the SA government has left us with no choice and that the only way we can get our views across is through legal action, then we may have to look at that option.”

There is another way - BAT

Hill said there are more effective alternatives to reducing smoking around the world.

“Education programmes in schools, awareness campaigns, and promoting the use of alternative products such as e-cigarettes would be more effective,” he claimed.

BAT said it acknowledges that consumers are becoming more health conscious and is responding to their needs through its next generation products. “People are looking for alternatives,” he said. “As a sustainable business, it makes commercial sense to provide products like our e-cigarette brand Vype.

“The development of inhaled nicotine products, which includes e-cigarettes, is a natural extension of BAT’s approach to tobacco harm reduction, which has been evolving over a number of years,” the company explained.

Motsoaledi also wants to tackle e-cigs

However, Motsoaledi said he was also out to regulate e-cigarettes. “We are looking at it very carefully,” he told the SABC, explaining that at the last WHO conference a decision was made to package e-cigarettes like any other cigarette.

“Some have nicotine and are just as bad as normal cigarettes,” he said. “It introduces people to tobacco.”

Motsoaledi said the 2009 law reduced smoking from 25% to 17%. “It is definitely working,” he said. “Many South Africans will tell you they appreciate the clean air.”

However, 44 000 South Africans still die every year as a result of smoking and Motsoaledi said the habit has “no place in modern life”.